United States Ex Rel. Jones v. Collegiate Funding Services, Inc. , 469 F. App'x 244 ( 2012 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-1103
UNITED STATES OF AMERICA ex rel. LENORA JONES and PATRICIA
J. WILLOUGHBY,
Plaintiff − Appellant,
v.
COLLEGIATE FUNDING SERVICES, INC.; COLLEGIATE FUNDING
SERVICES, LLC; CFS−SUNTECH SERVICING, LLC; JP MORGAN CHASE &
COMPANY,
Defendants − Appellees.
Appeal from the United States District Court for the Eastern
District of Virginia, at Richmond. Henry E. Hudson, District
Judge. (3:07-cv-00290-HEH)
Argued: December 7, 2011 Decided: March 14, 2012
Before KING, GREGORY, and DAVIS, Circuit Judges.
Affirmed by unpublished opinion. Judge Davis wrote the opinion,
in which Judge King and Judge Gregory joined.
ARGUED: Joe Bradley Pigott, PIGOTT & JOHNSON, PA, Jackson,
Mississippi, for Appellant. John Donley Adams, MCGUIREWOODS,
LLP, Richmond, Virginia, for Appellees. ON BRIEF: M. Bryan
Slaughter, MICHIEHAMLETT PLLC, Charlottesville, Virginia, for
Appellant. J. William Boland, Jeremy S. Byrum, MCGUIREWOODS,
LLP, Richmond, Virginia; Jonathan A. Vogel, MCGUIREWOODS, LLP,
Charlotte, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
2
DAVIS, Circuit Judge:
In this appeal, we are urged to hold that the district
court erred in its dismissal with prejudice, pursuant to Fed. R.
Civ. P. 12(b)(1), (b)(6) and 9(b), of Appellants’ myriad claims
under the False Claims Act, 31 U.S.C.A. §§ 3729–3732 (West 2003
& Supp. 2011) (FCA). 1 Finding no error, we affirm.
I.
Appellants-Relators Lenora Jones and Patricia J. Willoughby
(the Relators) are former employees of Collegiate Funding
Services, Inc. (CFS). 2 They allege that CFS violated various
provisions of the FCA in the course of its routine business
practices. CFS is a major student loan lender and servicing
1
We indicate throughout, where relevant, the provisions of
the FCA that were in effect at the time this case was initiated.
2
The named defendants were Collegiate Funding Services,
Inc. (the parent company); Collegiate Funding Services, LLC (a
CFS subsidiary) (CFS, LLC); CFS-Suntech Servicing, LLC (a CFS,
LLC subsidiary); and JPMorgan Chase & Co. (purchaser of CFS in
late 2005 or early 2006). As noted by the district court, the
Complaint “often refers to CFS generally, without distinguishing
between the several Defendants.” United States ex rel. Jones v.
Collegiate Funding Services, No. 3:07-cv-00290-HEH, 2011 WL
129842, at *3 (E.D. Va. Jan. 12, 2011). The record indicates
that in 2009, CFS, Inc., and CFS-Suntech Servicing, LLC, were
sold to ACS Education Services, Inc., and now go by the new
respective names of “Education Services Company” and “ACS
Education Loan Services, LLC.” Because none of the issues before
us turn on the particular identities of the defendants, we refer
to them collectively as CFS.
3
company that provides a variety of federal student loan
products, loan services, and school services as a participant in
the Federal Family Education Loan Program (FFELP). The FFELP was
established by the Higher Education Act (HEA), 20 U.S.C. §§ 1071et seq., and is administered by the federal Department of
Education (DoEd). The Eighth Circuit explained the operation of
the FFELP in U.S. ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791,
795 (8th Cir. 2011) (footnotes omitted):
Under the FFELP, DoEd pays claims submitted by
eligible private lenders for interest-rate subsidies
and special allowances granted on behalf of student
borrowers. See 20 U.S.C. §§ 1078(a)(1), 1087-1; 34
C.F.R. § 682.300, .302. DoEd also reduces private
lenders’ risk of loan defaults by entering into
guaranty agreements with Guaranty Agencies who, in
turn, insure Lenders against their potential default
losses on student loans. See 20 U.S.C. §§ 1078(b)-(c),
1080; 34 C.F.R. § 682.100(b)(1) . . . .
The practices of private Lenders and Servicers are
heavily regulated, and their participation in the
FFELP is conditioned on compliance with detailed DoEd
regulations.
The applicable regulations provide for withdrawal of eligible
lender status if, inter alia, a lender (1) offers direct or
indirect inducements to secure loan applications, 20 U.S.C.
§ 1085(d)(5)(A); (2) engages in fraudulent or misleading
advertising, 20 U.S.C. § 1085(d)(5)(I); 3 or (3) fails to afford
3
While the current provision concerning disqualification of
eligible lender status was revised in 2008 to provide further
(Continued)
4
exit counseling by schools to borrowers that includes repayment
and indebtedness information, 20 U.S.C. § 1092(b).
The Relators worked as telemarketing solicitors for CFS,
making and receiving calls from existing and potential student
loan borrowers about consolidation loan products. After leaving
CFS, Willoughby worked for various other lenders, as well.
The Relators’ Original Complaint, filed in the United
States District Court for the Northern District of Illinois,
alleged that CFS submitted false claims to the federal
government in connection with three distinct courses of conduct
that violated federal loan regulations. First, CFS “offered and
paid, to financial aid units within post-secondary education
institutions . . . payments and other inducements in order to
secure applications for [federal] loans.” J.A. 27. Second, CFS
“engaged in misleading advertising in the form of direct mail
solicitations,” which were designed to create the perception
that the mailings were “official communications from the Federal
Government.” J.A. 28. Third, CFS solicited consolidation loans
in violation of the “single holder rule,” which provides that
loans may not be consolidated by a lender who does not already
detail of prohibited conduct, it is substantively the same as
the provision in effect at the time the instant case was filed.
5
hold at least one of the student’s loans that will be part of
the consolidation.
The Relators asserted that in the course of engaging in the
unlawful loan processing conduct described above, CFS regularly
submitted claims, or caused claims to be submitted, to the DoEd
in order to obtain interest payment subsidies, special
allowances, and guaranty payments occasioned by loan payment
defaults. The DoEd requires that all such submissions for
payment be accompanied by a certification that the loan at issue
conforms to all federal regulations. 4 The Relators alleged that
CFS therefore violated the FCA when it submitted claims to the
government for interest, allowances, and guaranty payments with
certification of compliance with FFELP regulations, when it had
in fact engaged in unlawful practices to obtain the underlying
loans. Specifically, the Relators alleged four distinct counts
4
The blank certification form submitted by the Relators
with their Original Complaint states as follows, in part, in
small type at the bottom:
By submitting this claim to the guarantor for
reimbursement, the lender/holder certifies, to the
best of its knowledge, that the information in this
claim is true and accurate and that the loan(s)
included in the claim was (were) made, disbursed
(including remittance of origination fees) and
serviced in compliance with all federal regulations
and appropriate guarantor rules.
J.A. 113.
6
under the FCA: (1) presenting false claims; (2) causing false
certifications and other statements to be used to get false
claims paid and approved; (3) conspiring to get false claims
allowed and paid; and (4) causing false certifications and other
statements used to avoid obligations to pay the government.
Almost four months later, after the case had been
transferred from the Northern District of Illinois to the
Eastern District of Virginia, the Relators filed an Amended
Complaint. The Amended Complaint alleged four “patterns of CFS
violations” of federal loan regulations. J.A. 45. These alleged
“patterns” included the following practices, some of which
differed significantly from the allegations in the Original
Complaint: (1) that CFS provided inducements to secure and
maintain preferred lender status, rather than to increase mere
loan volume; (2) that CFS provided on-line, rather than in-
person exit counseling to students, which was misleading and
inadequate under the statutory requirements for counseling; (3)
that CFS engaged in misleading advertising; and (4) that CFS’s
own recruiters had been induced to increase application volume
through per-application bonuses. The Amended Complaint alleged
that for each pattern, if the government had been aware of the
regulatory violations, no interest, guaranty, or special
allowance payments would have been made, and CFS would have been
obliged to repay any federal funds received because they would
7
not have qualified as an “eligible lender” under the FFELP. See,
e.g., J.A. 50 (“If Guaranty Agency or DoEd representatives had
known the truth of such violations, no such claims or funds
would have been paid to CFS. If DOEd representatives had known
of the truth of such violations, CFS would have been obligated
to re-pay funds of the United States received since the time
that CFS would have been found not to have been an eligible
lender pursuant to 20 U.S.C. § 1085(d)(5).”).
The Amended Complaint specifically alleged 21 separate
counts of FCA violations arising out of CFS’s unlawful conduct,
rather than the original four counts. The first 15 counts
alleged that CFS and its loan servicing company had, in
violation of 31 U.S.C. § 3729(a)(2) (2006), caused false
statements to be used to get insurance guaranty payments and
claims paid for loans made as a result of the following
deviations from prescribed conduct: (1) unlawful inducements
(Counts 1-3); (2) deceptive exit counseling (Counts 4-6); (3)
deceptive direct mail solicitation (Counts 7-9); (4) bonus-
compensated recruiters (Counts 10-12); and (5) violations of the
single holder rule (Counts 13-15). The Amended Complaint also
alleged that CFS directly presented false claims related to
unlawfully made loans, namely, for insurance guaranty payments
(Count 16) and loan interest and special allowance payments
(Count 17), in violation of 31 U.S.C. § 3729(a)(1) (2006). In
8
addition, the Amended Complaint alleged in separate counts that
CFS had conspired to get false claims paid for (1) insurance
guaranty payments (Count 18) and (2) loan interest and special
allowance payments (Count 19), in violation of 31 U.S.C.
§ 3729(a)(3) (2006). Finally, the Amended Complaint alleged that
CFS had caused false certifications and other statements to be
used to avoid obligatory repayment of government insurance
payments (Count 20) and government interest and special
allowance payments (Count 21), in violation of 31 U.S.C.
§ 3729(a)(7) (2006) (making, using, or causing a false claim to
be used “to conceal, avoid, or decrease an obligation to pay or
transmit money or property to the Government”). 5
CFS filed a motion to dismiss the Amended Complaint in its
entirety. First, CFS argued that the court lacked subject matter
jurisdiction over all counts except Counts 10-12 (concerning
bonus-compensated recruiters) under the “public disclosure bar”
of the FCA. Second, CFS argued that all of the counts suffered
from inadequate particularity under Fed. R. Civ. P. 9(b), and
therefore failed to state a claim upon which relief could be
granted under Fed. R. Civ. P. 12(b)(6).
5
In 2009, the FCA was amended and these provisions are now
found at 31 U.S.C.A. § 3729(a)(1).
9
The FCA public disclosure bar, 31 U.S.C. § 3730(e)(4)
(2006), 6 provided at the time that:
(A) No court shall have jurisdiction over an action
under this section based upon the public disclosure of
allegations or transactions in a criminal, civil, or
administrative hearing, in a congressional,
administrative, or Government Accounting Office
report, hearing, audit, or investigation, or from the
news media, unless the action is brought by the
Attorney General or the person bringing the action is
an original source of the information.
(B) For purposes of this paragraph, “original source”
means an individual who has direct and independent
knowledge of the information on which the allegations
are based and has voluntarily provided the information
to the Government before filing an action under this
section which is based on the information.
To support this ground for dismissal, CFS submitted 38
exhibits. The exhibits included newspaper and internet articles
concerning investigations into student lender business
practices, CFS’s publicly available filings with the Securities
and Exchange Commission (SEC), and the complaint filed in United
States ex rel. Vigil (another FCA case brought by the Relators’
attorneys, which asserted similar claims against another lender
6
As part of the Patient Protection and Affordable Care Act
of 2010, the public disclosure provision was also revised and
now provides that courts “shall dismiss” an action “if
substantially the same allegations or transactions as alleged in
the action or claim were publicly disclosed . . . unless the
person bringing the action is an original source of the
information.” 31 U.S.C.A. § 3730(e)(4)(A).
10
on behalf of other Relators). 7 CFS also submitted a chart
comparing language from these publicly-available documents with
the specific language of the Amended Complaint to show that the
Relators’ claims alleged conduct that had in fact been made
public prior to the allegations made in this case.
In opposing the Motion to Dismiss, the Relators filed
affidavits attesting that they had not read any of the publicly-
available documents submitted by CFS before filing their
lawsuit, and they had not resided in any of the cities where
news media producing the coverage were based. In addition, the
Relators submitted a copy of the government’s amicus curiae
brief in Ortho Biotech Products v. U.S. ex rel. Chinyelu
Duxbury, 130 S. Ct. 3454 (2010) (denying cert.), in which the
7
Two of the exhibits submitted by CFS clearly were not in
the public domain: (1) a declaration by a CFS employee regarding
the company’s training of customer service representatives such
as the Relators, and (2) a table listing five similar qui tam
actions against other student lenders that had all been filed by
the Relators’ original counsel, Tim Matusheski, Esq., and
dismissed on various grounds. These cases include United States
ex rel. Lopez v. Strayer Educ. Inc., 698 F. Supp. 2d 633 (E.D.
Va. 2010) (dismissed under the public disclosure bar); Schultz
v. DeVry, Inc., No. 07-c-5425, 2009 WL 562286 (N.D. Ill. Mar. 4,
2009) (dismissed under the public disclosure bar); United States
ex rel. Fuhr v. Corinthian Colleges, Inc., No. cv-07-1157-ag-cw
(C.D.Cal. Aug. 24, 2009) (dismissed under the FCA’s first-to-
file bar; appeal voluntarily withdrawn); United States ex rel.
Batiste v. SLM Corp., 659 F.3d 1204 (D.C. 2011) (affirming
dismissal under first-to-file bar); United States ex rel. Vigil
v. Nelnet, Inc., 639 F.3d 791 (8th Cir. 2011) (affirming
dismissal for failure to state a claim).
11
government urged a liberal construction of pleading requirements
for FCA complaints. Finally, the Relators submitted a number of
other documents intended to show that they and their then
counsel had no knowledge of the news coverage or of the
publicly-available documents in question, 8 and a 2006 letter from
prior counsel to an Assistant United States Attorney in which he
set out a theory of FCA liability for CFS regarding their
eligible lender status.
The Motion to Dismiss was considered initially by a
magistrate judge, who conducted an evidentiary hearing and
thereafter prepared a Report and Recommendation (R & R) for the
district judge. The R & R recommended that Counts 1-6 and 16-19
be dismissed for lack of subject matter jurisdiction under the
public disclosure bar, and that Counts 7-12 and 20-21 be
8
These documents included: (1) a “Dear Colleague” letter
from the DoEd warning colleges that lender inducements to
schools violate the HEA and that the consequences for such
conduct might include rescission of eligible lender status and
loss of benefits on particular loans; (2) an affidavit from the
Relators’ counsel of record, Brad Pigott, Esq., averring that
co-counsel, Timothy Matusheski, Esq., engaged his services
because of his FCA expertise and that Pigott did not read, use,
rely on, or possess any of the public disclosures offered by
CFS; (3) a fax dated May 12, 2008, of the Wall Street Journal
article “J.P. Morgan to Stop Alumni Deals,” sent to Pigott from
Matusheski; and (4) a letter from Mr. Pigott to the assigned
magistrate judge explaining that Pigott did not know the CFS
document comprising SEC filing Form 8-K (2005) had been filed
with the agency and understood it to be a “confidential
investor” presentation at the time it was cited in the Amended
Complaint.
12
dismissed for failure to state a claim. (Counts 13-15 were
dismissed voluntarily by the Relators.) The public disclosure
bar applied to the former counts, the R & R explained, because
the Relators failed to show any actual direct knowledge
(acquired in the course of their employment as customer service
representatives) of the preferred lender program, exit
counseling programs, or alleged kickback arrangements between
CFS and various schools. This “lack of detail in the Relators’
affidavits” and “insufficient revelations of counsel” concerning
when counsel learned of certain news reports from the original
attorney for the Relators constituted a failure to overcome the
public disclosure bar. J.A. 736. In determining that the public
disclosure bar applied, the R & R concluded that forms filed
with the SEC by CFS were administrative reports for the purposes
of the FCA. As to the “original source” exception to the public
disclosure bar, the R & R found that the Relators’ “lack of
convincing evidence of ‘direct and independent knowledge’ . . .
weighs against their credibility.” J.A. 739.
The R & R found that the court had subject matter
jurisdiction over Counts 7-9, relating to direct mail
solicitation to consolidate federal loans, because the Relators
had provided “unrefuted and credible” assertions that while they
were employed at CFS they handled calls from prospective
borrowers who had received the mailings, and they had been
13
trained to tell callers that CFS was “licensed and backed by the
federal government.” J.A. 738. Nevertheless, the R & R
recommended dismissal of these counts for failure to state a
claim.
Addressing the adequacy of the pleadings for Counts 7-12,
all of which alleged that CFS caused false statements or
certifications to be used (in violation of 31 U.S.C.
§ 3729(a)(2) (2006)), the R & R noted that “[t]he only details
[pled] relate to asserted violations of the HEA and DOED
regulations – not to the submissions of false claims subject to
those regulations.” J.A. 744. Because the Relators had no
personal knowledge of any particular claims submitted for
defaulted loans, and had failed to provide “[any] details of the
claims process” such as “specific defaults, payments, dates, or
other indicia from which a specific claim can be inferred to
have been submitted,” they had failed to state a claim with
sufficient particularity. J.A. 745-46; 743. The R & R also noted
that a false claim concerning a government-insured loan is
material only when the loan has gone into default and a claim is
in fact submitted (i.e., the insurance payout has been
14
triggered). Here, no specific allegation regarding a particular
loan had been made. 9
Finally, the R & R recommended denying leave to amend the
Amended Complaint because the “Relators candidly admit that they
do not possess the information that is necessary” for a
particularized allegation about false claims submitted to the
federal government by CFS. J.A. 746.
The Relators filed timely exceptions to the R & R, and
submitted supplemental affidavits attesting to additional facts
concerning their direct knowledge of CFS’s practices. Relator
Willoughby asserted that as a CFS customer service
representative she had received calls from students who were
using the exit counseling software alleged to be misleading;
that she learned through her work with other lenders after
leaving CFS that the company designed its software to be
misleading; that CFS had an agreement with Norfolk State
University to be an exclusive endorsed provider of consolidation
loans through the alumni association, which in return received
payments per loan application; 10 and that she had contacted CFS
9
The R & R concluded that it was unnecessary to determine
whether the allegedly false certifications were material to
federal payments to CFS because the fraud allegations themselves
lacked particularity.
10
The evidence for this prior, independent knowledge of the
kickback scheme is a 2006 email in which Willoughby shared the
(Continued)
15
about the application kickbacks through alumni groups and was
referred to an unnamed representative who would be able to
provide her more information about these arrangements.
Relator Jones also submitted a supplemental affidavit. She
asserted that as an employee of CFS she had access to the
National Student Loan Data System, which indicates the status of
each federal loan (i.e., whether the loan was in default and
therefore presumptively eligible for federal guaranty payments).
In addition, Jones attested that she, Willoughby, and their
legal counsel had met with representatives of the Department of
Justice and DoEd on July 13, 2007 (in the interim between the
filing the Original and Amended Complaints) to discuss their
claims.
The district court overruled the Relators’ exceptions to
the R & R and granted the motion to dismiss. United States ex
rel. Jones v. Collegiate Funding Servs., Inc., No. 3:07–cv–290,
2011 WL 129842 (E.D. Va. Jan. 12, 2011). First, the court
addressed the Relators’ assertion that the R & R unfairly
“proceeded from a false dichotomy . . . that if [their]
information with a financial aid director. Willoughby, working
as a private consultant, had contacted the financial aid
director to offer payments on behalf of her own clients and when
she was rebuffed on the ground that such payments violated the
HEA, she retorted that, “If it is [illegal to donate payments
per loan], CFS is in BIG trouble.” J.A. 778.
16
knowledge was not derived from their employment, then it must
have been derived from prior public disclosures.” Id. at *5. The
district court found this assertion lacked merit in light of the
fact that the magistrate judge “appropriately considered”
Relator Willoughby’s work in the student loan industry
generally. Id. at *7. The court also declined to consider the
supplemental affidavits, as they were untimely filed.
Second, the court turned to the Relators’ contention that
SEC filings by CFS were not “administrative reports” for
purposes of the public disclosure bar and thus should be
disregarded in assessing the dismissal motion. The court
reasoned that administrative reports are defined not by
government authorship, but government receipt, public
availability, and the use of a particular document for the
government’s own investigative or analytical purposes. Finding
that the SEC filings met each of these requirements, the
district court concluded it was proper to consider the documents
as administrative reports under the public disclosure bar.
Third, the court addressed the Relators’ broad contention
that their allegations concerning preferred lender inducements
and deceptive exit counseling were not actually derived from
public disclosures. Acknowledging that not “every relator in a
qui tam action must affirmatively establish the source of his or
her knowledge,” the court listed the publicly disclosed
17
information for both patterns of conduct alleged in Counts 1-6
and found that the Relators failed to provide adequate evidence
of their “logical access” to the information within their
employment as an alternative explanation for the source of their
allegations. Id. at *11.
The evidence cited included SEC filings by CFS in which the
company touted being on more than 500 preferred lender lists,
documentation of then-New York Attorney General Andrew Cuomo’s
investigation into possibly illegal activity by student lenders
to secure preferred lender status, and a New York Times article
published days before the filing of the Relators’ Original
Complaint in which JP Morgan was named as a target of that
investigation.
The district court also cited articles published on May 8,
2007, in USA Today and the Wall Street Journal that “disclosed
that JP Morgan Chase had entered into preferred-lender deals
with alumni associations.” Id. at *12. While these disclosures
were made after the filing of the Original Complaint, the court
found that they were relevant because they preceded the filing
of the Amended Complaint, in which the Relators first made
allegations regarding alumni associations (instead of or in
addition to, financial aid offices).
Regarding public disclosures related to the second pattern
of conduct, deceptive exit counseling, the district court cited
18
CFS’s SEC filings about their exit counseling software products,
and a New York Times article specifically mentioning that the
CFS software directed student borrowers to their consolidation
loan products. In addition, the court noted that during the
period between the filing of the Original and Amended
Complaints, two publicly disclosed reports referred to CFS’s
exit counseling software; one of these reports indicated that
prohibited marketing was included in the counseling.
The court observed that the Relators’ Original Complaint
made no mention of online exit counseling at all, yet the
Amended Complaint included 17 paragraphs concerning online exit
counseling, which had in the interim been disclosed or referred
to in various publications. The court concluded that the public
disclosures concerning inducements and online exit counseling
were therefore “far more than coincidental.” Id. at *10.
The district court then turned to the “original source”
exception to the public disclosure bar, pursuant to which a
Relator may proceed despite publicly available knowledge if he
or she is an “original source” of the information on which an
FCA claim is based. 31 U.S.C. § 3730(e)(4)(A) (2006). Under the
terms of the statute in effect at the time, an original source
was defined by two elements: “direct and independent knowledge”
of the information, and voluntary provision of the information
to the government before filing an action under the FCA that is
19
based on that information. 31 U.S.C. § 3730(e)(4)(B) (2006). The
district court adopted the finding in the R & R that the
“Relators’ affidavits do not evidence independent knowledge of
the allegations in the Amended Complaint.” Jones, 2011 WL 129842at *12. Subject matter jurisdiction for Count 1-6 was therefore
lacking and a determination of the second element, whether the
Relators had provided the government with their information, was
unnecessary.
The district court then considered whether it had subject
matter jurisdiction over the direct mail solicitation
allegations (Counts 7-9). The court adopted the R & R finding
that the Relators’ personal experience as customer service
representatives supported their independent knowledge of CFS’s
conduct. As to CFS’s challenge to subject matter jurisdiction
for Counts 20-21, conspiracy to cause false statements and
certifications to be used to avoid repayment obligations, the
district court again adopted the findings in the R & R that
these counts were independent of the other counts and
jurisdiction was therefore proper. Finally, the court rejected
the R & R finding that subject matter jurisdiction was lacking
for Counts 16-19, finding instead that, as with Counts 20 and
21, the bases for these allegations was independent of the
invalidated counts.
20
To summarize, the district court dismissed Counts 1-6 for
lack of subject matter jurisdiction under the public disclosure
bar, finding inadequate evidence of Relators’ independent
knowledge of CFS’s conduct. On the other hand, the court found
the existence of subject matter jurisdiction over the remaining
counts, Counts 7-12 (alleging violations of § (a)(2)), and
Counts 16-21 (alleging violations of § § (a)(1),(3),(7)), as to
which the Relators had satisfied their burden to show their
access to independent, first-hand bases for the allegations. 11
Having found jurisdiction over Counts 7-12 and 16-21, the
district court then turned to the issue of whether these counts
met the heightened pleading requirements of Fed. R. Civ. P.
9(b). In the court’s view, the Relators “maintain[ed] that they
satisfied Rule 9(b) by attaching a blank FFELP claim form and
describing Defendants’ alleged HEA violations.” Id. at *15. The
court ruled this submission inadequate for two reasons: (1) the
Relators did not allege the involvement of any third party
claimants (analogous to subcontractors) and thus there was no
basis for an allegation that CFS “used or caused to be used a
false certification . . . to get a false or fraudulent claim
paid by the government,” 31 U.S.C. § 3729(a)(2); and (2) any
11
As noted above, Relators voluntarily dismissed Counts 13-
15.
21
certifications by CFS would be false only upon submission to the
government and a blank form was not evidence of submission of
any actual claim for federal payment by the company.
As for the Relators’ argument that they were not required
to “particularize dates and amounts of individual claims”
because they were alleging a fraudulent scheme rather than
specific events, Jones, 2011 WL 129842 at *17, and accepting
that Rule 9(b) can be satisfied by allegations of a scheme, the
court ruled that the Relators had not alleged facts showing that
false claims had in fact been submitted by CFS and had “not
allege[d] any instances of payment by the government, instances
of default, or any other facts from which the Court could infer
that Defendants actually submitted any false statements.” Id. at
*18. Certification forms were relevant only to a specific loan,
the court noted, and thus did not assert compliance with federal
loan regulations generally, as to other or all loans by the
lender. In addition, a blank form was merely evidence that CFS
could submit a false claim, not evidence that it did do so. The
allegations regarding submitted claims were therefore “naked
assertion,” the court concluded, and as such were merely
speculative. 12 Id. at *19.
12
The district court also briefly addressed the
government’s submission of a Statement of Interest, which
articulated its understanding of the particularity standard for
(Continued)
22
The court’s final order thus dismissed Counts 1-6 for lack
of subject matter jurisdiction and Counts 7-12 and 16-21 for
failure to state claim. The Relators have timely appealed.
II.
This case comes to us under somewhat ironic circumstances,
in that the district court found that some of the allegations of
fraud brought by the Relators, if meritorious, were too widely
known to support their claims, and some of the allegations were
too opaque and lacking specificity. We first consider the
propriety of the dismissal of some claims based on the public
disclosure bar. Next, we consider whether the district court
erred in dismissing any one or more claims for failure to state
a claim. For the reasons set forth herein, we discern no error
in the court’s analysis.
FCA claims. The Statement asserted that “where liability does
not depend on anything specific in the defendants’ claims
themselves as the basis for alleging that they were false, and
instead relies on the general principle that a defendant’s false
representations prior to submission of claims and/or failure to
comply with contractual promises can render the defendant’s
subsequent claims payment false,” no specific allegations of a
particular claim are required. United States’ Statement of
Interest at 3, United States ex rel. Jones v. Collegiate Funding
Services, 2011 WL 129842 (E.D.Va. Jan. 12, 2011)(No. 3:07-cv-
00290-HEH). The court noted that it agreed with the government
as to the applicable pleading standard, and was ruling only that
the Relators had failed to meet it.
23
A.
The Relators argue first that the district court erred in
determining that they actually based the allegations in Counts
1-6 of the Amended Complaint, concerning loans made as a result
of unlawful inducements and deceptive exit counseling, on public
disclosures. The determination of an actual basis for an FCA
allegation is a finding of fact, reviewed for clear error.
United States ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 348 (4th
Cir. 2009). “[A] relator’s action is ‘based upon’ a public
disclosure of allegations only where the relator has actually
derived from that disclosure the allegations upon which his [or
her] qui tam action is based.” United States ex rel. Siller v.
Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir. 1994). 13 The
public disclosure bar “encompasses actions even partly based
upon prior public disclosures.” Vuyyuru, 555 F.3d at 351. Once a
motion to dismiss on jurisdictional grounds is filed, the
relator “[bears] the burden of proving by a preponderance of the
13
For much of the time that the FCA language of 2007 was in
effect, this circuit’s subjective “actual reliance” rule
differed from that of the majority of circuits, which held that
an objective standard (in which a factual overlap of relator
allegations and public disclosures, regardless of actual
reliance, triggers the bar) is proper. See Jones, 2011 WL
129842, at *5 (noting that the Second, Third, Sixth, Seventh,
Eighth, Ninth, Tenth, and Eleventh Circuits all applied an
objective rule of public disclosure for the provision in effect
in 2007).
24
evidence” that the allegations are not based upon public
disclosures. Id. at 348 (citing Rockwell Int’l Corp. v. United
States, 549 U.S. 457, 468 (2007)). Moreover, “when a plaintiff
files a complaint in federal court and then voluntarily amends
the complaint, courts look to the amended complaint to determine
jurisdiction.” Rockwell, 549 U.S. at 473-74.
At the time of the Relators’ Complaints, the FCA’s public
disclosure bar provided:
(A) No court shall have jurisdiction over an action
under this section based upon the public disclosure of
allegations or transactions in a criminal, civil, or
administrative hearing, in a congressional,
administrative, or Government Accounting Office
report, hearing, audit, or investigation, or from the
news media, unless the action is brought by the
Attorney General or the person bringing the action is
an original source of the information.
(B) For purposes of this paragraph, ‘original source’
means an individual who has direct and independent
knowledge of the information on which the allegations
are based and has voluntarily provided the information
to the Government before filing an action under this
section which is based on the information.
31 U.S.C. 3730(e)(4) (2006). 14 The Relators argue that under the
plain language of the statute and precedent in this circuit, the
14
In 2010, these provisions were amended. Section
3730(e)(4) now provides:
(A) The court shall dismiss an action or claim
under this section, unless opposed by the Government,
if substantially the same allegations or transactions
as alleged in the action or claim were publicly
disclosed—
(Continued)
25
public disclosure bar applies only where an FCA claim is
actually based upon publicly disclosed information, and those
disclosures specifically set out conduct by the particular
defendant. They assert that neither requirement obtains in this
case because they have submitted sworn affidavits that they did
not read any of the publically-available documents in question
and, in any event, the publicly-available documents themselves
fail to set out allegations against the defendants named in this
case.
(i) in a Federal criminal, civil, or
administrative hearing in which the Government or its
agent is a party;
(ii) in a congressional, Government
Accountability Office, or other Federal report,
hearing, audit, or investigation; or
(iii) from the news media,
unless the action is brought by the Attorney General
or the person bringing the action is an original
source of the information.
(B) For purposes of this paragraph, “original
source” means an individual who either (i) prior to a
public disclosure under subsection (e)(4)(a), has
voluntarily disclosed to the Government the
information on which allegations or transactions in a
claim are based, or (2) who has knowledge that is
independent of and materially adds to the publicly
disclosed allegations or transactions, and who has
voluntarily provided the information to the Government
before filing an action under this section.
31 U.S.C. § 3730(e)(4).
26
Appellees respond by emphasizing that CFS’s parent,
JPMorgan Chase, was in fact named in news coverage of New York
Attorney General Cuomo’s investigations, and that the various
news reports and SEC filings available before the Original and
Amended Complaints provided enough information for the Relators
to build their claims. They urge us to consider the public
disclosures together, rather than discretely as to a particular
allegation, and assert that the Relators do not, and cannot,
argue that under such a holistic approach their claims avoid the
public disclosure bar.
In light of the evidence adduced in the hearing before the
magistrate judge below and the justified findings adopted by the
district court based thereon, we are unable to conclude that the
district court committed clear error in finding that the
Relators’ claims were actually based upon public disclosures.
The Relators argue that public accounts of general industry
behavior, without specific allegations concerning CFS, are
insufficient to provide a basis for specific claims against a
particular defendant. They rely primarily on an unpublished
Seventh Circuit decision, United States ex rel. Baltazar v.
Warden & Advanced Healthcare Assoc., No. 09-2167, 2011 WL 559393(7th Cir. Feb. 18, 2001), for the proposition that reports of a
high rate of fraud within an industry should not bar specific
FCA actions against individual wrongdoers. The publically-
27
available information underlying this case, however, does not
establish merely an industry-wide set of allegations. The
district court cited a published report that CFS was involved in
the Cuomo probe, and CFS’s own claim that its business model
included special inducement arrangements with schools for access
to student borrowers. While relators are not required to
affirmatively prove the source of their information for FCA
allegations, as the district court noted, mere denial of
knowledge of public disclosures does not satisfy the burden
established by Vuyyuru.
In their affidavits, the Relators aver that their
employment with CFS and in the student loan industry provides
the sole source of their allegations, yet the scope of their
employment – by their own description - does not establish or
plausibly suggest access to the kind of information upon which
their allegations are based. In addition, as noted above, under
Vuyyuru, even partial reliance on public disclosure bars a qui
tam action. Faced with evidence of public disclosures and no
reasonably inferable sources other than these documents (and in
light of the apparent pattern of litigation by the Relators’
initial counsel in similar cases), the district court did not
clearly err in concluding that the Relators failed to establish
28
that Counts 1-6 of the Amended Complaint were not actually
based, in whole or in part, on public disclosures. 15
B.
As a distinct component of their arguments concerning the
public disclosure bar, the Relators challenge the district
court’s determination that SEC filings by CFS were
“administrative reports” for purposes of the public disclosure
bar. See 31 U.S.C. § 3730(e)(4)(A). They note that, “In the end
. . . the District Court acknowledged that ‘the applicability of
the public disclosure bar in this case does not turn on whether
CFS’s SEC filings are ‘administrative reports.’” Appellants’ Br.
15
The district court found that the allegations in Counts
7-9, concerning deceptive mailings designed to mislead borrowers
into believing that CFS was a government entity, were not made
in actual reliance on public disclosures and were therefore
within the subject matter jurisdiction of the court. While the
counts were dismissed nonetheless under Rule 9(b), CFS urges us
to reverse the district court’s finding by “abandoning” the
actual reliance rule of Siller and adopting the majority rule in
which allegations “substantially similar” to public disclosures
are barred. Apart from the fact that a panel of this court is
not free to disregard binding circuit precedent, see United
States v. Collins, 415 F.3d 304, 311 (4th Cir. 2005), such a
step is unnecessary, as the 2010 amendment of the FCA explicitly
incorporates the substantially similar standard: “The court
shall dismiss an action or claim under this section, unless
opposed by the Government, if substantially the same allegations
or transactions in the action were publicly disclosed.” 31
U.S.C. § 3730(e)(4). When the instant case was initiated,
however, the provision barred actions “based on” public
disclosures and thus Siller’s reasoning properly applies to the
language in effect at the time, and the district court correctly
applied circuit precedent.
29
28. Because the district court did consider SEC reports in its
analysis, however, we take this opportunity to address the
issue.
The Relators point to Graham County Soil & Water
Conservation Dist. v. United States ex rel. Wilson, 130 S. Ct.
1396, 1402 (2010), for the rule that “administrative” in the FCA
context relates to “the activities of governmental agencies,”
and they argue that, consequently, a document merely received by
an agency cannot constitute an administrative report. But as the
district court noted, under Graham County, “It is the fact of
‘public disclosure’-not Federal Government creation or receipt-
that is the touchstone of [the public disclosure bar].” Id. at
1405. The court went on to reason that because documents created
by private parties constituted materials of “administrative
hearings” for the FCA, under United States ex rel. Grayson v.
Advanced Management Tech., 221 F.3d 580 (4th Cir. 2000),
privately-created SEC filings can also constitute an
administrative report.
We find this reasoning unpersuasive in the context of this
case. Hearings are, by general definition, forums in which
parties present and submit privately prepared documents in
support of their positions on a particular question; reports, on
the other hand, are generally distinguishable as products of
official activity of some kind. The context for an
30
administrative hearing and report are sufficiently unique that a
rule for the former would not necessarily apply to the latter.
We are satisfied, nonetheless, that the SEC filings by CFS
were reasonably determined to be administrative reports because
they were submitted under the SEC’s administrative regulatory
requirements of the company. Forms 8-K and S-1 are mandatory
filings for all publicly traded companies. See, e.g., 17 C.F.R.
§§ 240.13a-11, 229.101. While these documents were not authored
by the SEC or created under their supervision, they were
produced at the request of and were made public by the SEC in
the course of carrying out its activities as a federal agency.
In the context of ruling that state and local agencies are
“administrative” for the purposes of the public disclosure bar,
the Supreme Court has noted that statutory construction of the
FCA should be guided by the likelihood that a disclosure will
“put the Government on notice of a potential fraud . . . .
Congress passed the public disclosure bar to bar a subset of
those suits that it deemed unmeritorious or downright harmful .
. . . The statutory touchstone, once again, is whether the
allegations of fraud have been [publicly disclosed].” Graham
County, 130 S. Ct. at 1404, 1409, 1410. Here, the SEC forms in
question were requested, received, made public, and presumably
included in any corporate profiles compiled by the agency. While
such a report does not necessarily alert federal agencies to
31
wrongdoing, it certainly provides easily accessible notice of
the transactions between CFS and its customers from which an
investigation could have begun or developed. Because the SEC
filings in question comport with the FCA purposes set out in
Graham County, we find that they are administrative reports for
the purposes of the public disclosure bar, and were properly
considered by the court below in the mix of publically available
information on the basis of which, in whole or in part, the
Relators’ claims are based.
C.
The final issue on appeal is whether the district court
erred in dismissing Counts 7-12 and 16-21 for lack of
particularity under Fed. R. Civ. P. 9(b). Dismissal under Rule
9(b) “is treated as a failure to state a claim under Rule
12(b)(6).” Harrison v. Westinghouse Savannah River Co., 176 F.3d
776, 783 n.5 (4th Cir. 1999). “This Court reviews de novo a
district court’s dismissal for failure to state a claim[.]” Id.In determining whether the order was proper, the
appellate court accepts as true all of the well-
pleaded allegations and views the complaint in the
light most favorable to the non-moving party. Mylan
Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.
1993). It then determines whether a “plausible claim
for relief” has been made. Ashcroft v. Iqbal, 556 U.S.
662 (2009).
Lesueur-Richmond Slate Corp. v. Fehrer, --- F.3d ---, ---, 2012
WL 104914, *1 (4th Cir. Jan. 13, 2012).
32
To briefly recap the theory of the Relators’ FCA claims,
they assert that CFS habitually violated the regulations of the
FFELP, and thus all certifications of compliance with FFELP for
loans obtained or serviced unlawfully were false. When these
certifications were submitted to the federal government in
support of claims for interest subsidy, insurance guaranty, or
special allowance payments, the submissions were therefore false
claims under the FCA.
As an initial matter, we observe that there seems to have
been some confusion below as to which category of loans by CFS
the Relators alleged were in fact related to false claims. The
Relators apparently raised an objection before the district
court that the magistrate judge misunderstood their claims to
extend to all loans made or serviced by CFS. They sought to
clarify that they claimed only the loans “subject to inducement
promises and payments” resulted in false claims; the R & R
itself, however, noted that Relators’ claims were limited to
certifications for loans that actually went into default (and
were therefore eligible for guaranty payments).
The Amended Complaint alleges the making and presentation
of, and conspiracy to make or present, false claims for payments
related to disbursed consolidation loans (Counts 8, 9, 11, 12,
17, 19, 21) and defaulted consolidation loans (Counts 7, 10, 16,
18, 20). An adequately particular claim under Rule 9(b) related
33
to these two categories could ostensibly be different-–
allegations of claims for special allowance and interest
payments on a general class of disbursed loans that were
accompanied by a false certificate of compliance do not suffice
as particularized claims related to defaulted loans, for which
insurance guaranty payments have been made by the government.
Without detailing a separate analysis for each count, the
district court concluded that merely providing blank
certification forms together with allegations that all loans
made or serviced as a result of unlawful conduct resulted in
false claims was inadequate under Rule 9(b) for all the counts
over which subject matter jurisdiction was proper.
Before us on appeal, the Relators now argue that they did
not rely merely on blank certification forms to satisfy their
pleading allegation of false claims. They explain that their
claims set out allegations that, taken together, adequately
support the inference that false claims were actually presented
to the federal government. 16
16
Their argument on this point appears limited, however, to
claims related to loan defaults, i.e., Counts 7, 10, 16, 18, and
20; the Relators do not directly address the district court’s
dismissal of the counts relating to interest and special
allowance payments on loans that were disbursed but never
entered default, i.e., Counts 8, 9, 11, 12, 17, 19, and 21.
34
Federal Rule of Civil Procedure 9(b) sets out a heightened
pleading standard for fraud:
In alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or
mistake. Malice, intent, knowledge, and other
conditions of a person’s mind may be alleged
generally.
“[T]he ‘circumstances’ required to be pled with particularity
under Rule 9(b) are ‘the time, place, and contents of the false
representations, as well as the identity of the person making
the misrepresentation and what he obtained thereby.’” Harrison,
176 F.3d at 784 (citation omitted). In Harrison, we noted with
approval that “[t]he Fifth Circuit has emphasized that liability
for a false certification will lie only if compliance with the
statutes or regulations was a prerequisite to gaining a benefit,
and the defendant affirmatively certified such compliance.” Id.
at 787.
Because false certification is critical to all the relevant
counts in question here, providing the basis for all the
allegedly submitted claims being legally “false,” the initial
question for all counts is whether the Relators’ allegations of
false certification are adequately particular. 17 We agree with
17
The district court focused on the alleged (a)(2)
violations (false statements), finding that certification was
not alleged with adequate particularity even under a “fraudulent
scheme” claim, and that the Relators failed to offer facts
supporting the inference that any claims were actually
(Continued)
35
the district court that each remaining count fails on this
ground. As the district court observed, the “Relators neither
serviced nor processed any consolidated loans, provided any
post-consolidation customer service, or had access to
information regarding claims for government reimbursement
submitted by CFS.” Jones, 2011 WL 129842 at *19. In Harrison, by
contrast, the Relator alleged personal knowledge of the
certification process, and of the misrepresentations made in the
allegedly false certification (which resulted in a subcontractor
in fact being retained for work that the Relator had personal
knowledge of). Harrison, 176 F.3d at 781-82.
Similarly, in United States ex rel. Grubbs v. Kanneganti,
565 F.3d 180, 191-92 (5th Cir. 2009), the Fifth Circuit found
adequate particularity in the allegations of a claim where the
Relator’s allegations of false statements “made to get a claim
paid” included dates and recollections of face-to-face meetings
with alleged falsifiers and dates of billing falsification by a
particular doctor. See also United States ex rel. Lusby v.
Rolls-Royce Corp., 570 F.3d 849, 853-54 (7th Cir. 2009) (finding
adequate particularity under Rule 9(b) where a Relator provided
submitted. J.A. 900-9. The other alleged violations, under
(a)(1), (a)(3), and (a)(7), were not addressed directly,
presumably because the false claims alleged therein are also
based on the assertion of false certification.
36
evidence of specific parts shipped on specific dates, and
details of payment, even where the company’s claim submitted to
the government were not provided).
Here, the Relators allege only the broad inferential claim
that but-for the certifications, the loans would not have been
disbursed. They have made no allegation as to any particular
transactions between CFS and the government in which the
certifications were material, nor do they name or identify any
employee who (knowingly or not) completed a false certification
form. In light of the complete absence of any particularity as
to their allegations, we agree with the district court that the
Relators fail to meet the requirements of Rule 9(b) and their
claims were properly dismissed.
III.
For the foregoing reasons, we discern no error in the
district court’s dismissal for lack of subject matter
jurisdiction Counts 1-6 of the Amended Complaint under the
public disclosure bar of the FCA. Furthermore, we discern no
error in the district court’s dismissal of Counts 7-12 and
Counts 16-21 for failure to state a claim under Fed. R. Civ. P.
9(b), 12(b)(6). Accordingly, the judgment of the district court
is
AFFIRMED.
37